Finance Your Budget Considering a lifetime annuity? It may boost your pension payments
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Considering a lifetime annuity? It may boost your pension payments

annuities older couple
Lifetime annuities offer age pension benefits but also come with major drawbacks. Photo: Getty
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Question 1: G’day. What’s this I hear about a 40 per cent discount for the Centrelink asset test for lifetime annuities?

Certain lifetime annuities, including annuities offered by Challenger and other innovative income streams such as QSuper’s lifetime Pension that meet legislative requirements, may provide age pension advantages.

If you buy a complying product, then the following applies.

  • Asset test: Only 60 per cent of the purchase price is counted under the asset test. And if you live to beyond the life expectancy of a 65-year-old male, currently age 84 (subject to a minimum of five years), then the amount that is asset-tested reduces to only 30 per cent of the purchase price
  • Income test: Only 60 per cent of income received is counted under the income test.

As you can see, they do offer some considerable concessions for those wanting to maximise age pension. So, what is the catch?

Firstly, your funds are generally tied up and you cannot access them, so it would be unwise to put all of your funds into one of these products.

They can be combined with an account-based pension or other funds you have outside of super.

If you want to leave a large estate or are in poor health, then these products may be unsuitable, although most of them do offer a refund of capital, less income paid, should you die early.

Because they can be complex and offer different choices, these types of products are generally recommended and sold by financial advisers.

Therefore, you should consider seeking advice before proceeding. 

Question 2: I inherited $300,000 from my parents’ estate. Do I need to pay tax?

There are no inheritance or estate taxes in Australia.

The executor of your parents’ estate should have finalised any tax obligations prior to providing you the funds. If you receive cash or a bank transfer, then generally no tax is payable.

However, in some instances you may have tax obligations for the assets you inherit, such as:

  • Capital gains tax may apply if you dispose of an asset, such as shares or an investment property, inherited from a deceased estate
  • Income tax applies as usual to any dividends or rental income from shares or property you inherited.

If your parents had super, the super fund pays a ‘super death benefit’ to the beneficiaries.

Whether there is any tax on a super death benefit depends on:

  • Whether you were a dependant of the deceased under tax law
  • Whether it is paid as a lump sum or income stream
  • Whether the super is tax-free or taxable (and whether the super fund has already paid tax on the taxable component)
  • Your age and the age of the deceased person when they died (for income streams).

Again, the super fund or estate should have withheld any applicable tax prior to payment.

You should seek specialist tax advice from an accountant if you are concerned about your tax affairs.

Question 3: If I have tenants in my house and I want them to leave, can I solve the problem by selling the house?

This seems like a dramatic way of solving your problem, as opposed to, say, waiting for the lease to expire, but yes you can sell the property with tenants still in it.

The tenants do have rights and you have to let them know you are selling in writing and if you want them out of the house during inspections or maintenance, they need to be compensated.

The tenants can continue to live at the property, under the new owners, at least until their current lease expires.

The regulations differ between states, so in the first instance, speak with your preferred property agent and even consider seeking legal advice.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings